The Stress is Back

Pre-market futures have given back most of Friday's anti-stress rally. The banks rallied the market on Friday and the banks are dumping the market today. There was no new or significant change in the news about the capital that banks are raising to meet the "stess test" demands. But fund managers are treating the "actual" raising of capital versus the "talking about" raising capital like it's poisonous news.....Oh yea, and there's another big gap.....the asteroid shower lives on.....

The first support level for the SPY (market) is the gap at 91.40 - 91.50, the same numbers apply today as Friday for the SPY and SPX. A fade down through the 91.00 area is likely confirmation that the Friday anti-stress rally was a one-day wonder. A fade through the 900 area on the SPX and it's probably headed for a test of the 880 area over the next couple of days.

Benny and the Feds will do their best, along with our political leaders, to bogart and prop the market through words, and Benny gets his chance later today. He is due to make a speech about the bank stress tests at an Atlanta Fed conference. The conference is not listed on the official Fed schedule, but I've seen some chatter that it's there, so be on the watch for any intra-day spikes as he speaks.

7:46 am MT: Here is a chart of the SPX:
(click on image to enlarge)

In a normal world of trading with actual "Smart Money" and not "diluted gene pool, Googly-Eyed Money that is constantly falling for the intense new manipulation by the government" this would be as much a no brainer for 880 on the SPX is it gets. It would be so much of a no brainer that the big, smart money would sell it off to 880 by tomorrow at the latest, and not waste any time getting it done. In our world of "coincidently the Fed just happens to be speaking today" and "hey look, it's Geithner at the podium, who knew he was speaking today?", this may not go in a straight line.....However, like I said, in even remotely normal price activity, this is as no-brainer as it gets - the SPX goes to 880.

8:02 am MT: Here is a 60m chart of the SPX:
(click on image to enlarge)

The intra-day chart gives a clear perspective of the 900 tipping point, and the next key level of support down in the 870 - 880 area. The 880 support area is even more visible on the daily chart I posted first. In the other direction, a move above 925 would be a red flag for the bears. A move above 930 and the SPX is probably headed for the top end of the resistance zone at 940. I speculate that the only way we see 940 by tomorrow is a news bogey. Like I said earlier, in an even remotely close to normal market this is a no brainer consolidation to 880 on the SPX, probably by tomorrow. In our current market, it will be important to pay attention to any sharp reversal intra-day, especially if "somebody" is speaking.

8:52 am MT: The market had it's usual buy the dip snap-back, which we have seen so much of the past month. A big portion of the initial stress this morning is not so much that the banks have to raise capital for the stress test, but that banks are raising capital to pay back the TARP so they don't have to be run by the government. In the messed up world of diluted gene pool fund managers, the bad news is good news and the good news is bad news. Last Friday (and previously) the banks needing to raise capital to stay solvent was actually bad news (how excited would you be to know your bank had to raise billions of dollars to stay afloat - would you feel secure about your money?). This morning, the banks raising capital to pay back TARP funds and destroy the governments attempts at socializing the financial system is actually fantastic news, but the market is selling off on the news. The real key to the news is that it's a short term negative, and the Googly-Eyes, being the myopic traders that they are, can't see the long term benefit of not becoming a socialist country.

Here is a 15m chart of the SPX:
(click on image to enlarge)

The key for the rest of the morning is whether or not the SPX (market) rolls over in the 917.50 area, or if it pushes on up towards the 920 - 922.50 area. A push up and the SPX may stay relatively range-bound in a rolling action for much of the day. A rollover from here and the SPX will probably go test the lows around 908, which is the next battle point. If the SPX does reach back down to 908, then drops through the morning lows, it is likely headed towards the 902 area and the move to 880 increases in probability. If the SPX rolls over from here but holds above the 910 area, and then rallies back up to 918, then a move to 923 - 930 increases in probability. In a normal market, the highest probability scenario is a drop to 880, but even the snap back we just had is a caution that this is not a normal market. We'll see how the rest of the day plays out.....

9:25 am MT: Nothing new has developed in the past 30m. This is right about the time the snap back should roll over on the 15m charts - if it's going to. If the SPX doesn't roll over in the next 15m - 30m, then it may hang out for a while, go range bound, and even try to push up a little more.

9:33 am MT: There's the rollover. Now it's a matter of watching how the SPX handles the morning's lows as I outlined above. We'll see if the bears get any traction through the rest of the day, or if the bulls base the market along the 910 area and hold the line.

12:35 pm MT: The SPX did hold the 910 area after the rollover and try to push. And the market did go range bound and push a little to the upside within the range. The bears weren't able to gain any traction through the middle of the day, and the bulls are still reluctant to sell, at least for now. The market is consolidating intra-day within a Triangle pattern, which may be a signal for a continuation of the selling later in the day.

Here is a 15m chart of the SPX showing the Triangle:
(click on image to enlarge)

The market may still fade down through this Triangle. A break of the intra-day Triangle projects the next move almost exactly to the next support level down in the 902 - 902.50 area.

One last note, Benny doesn't speak at the Atlanta Fed Conference until after the market close. So the bulls may have been hanging around waiting for a good news bogey, but when they realized they might not get anything during the market, and that Benny may or may not do them any favors tonight, they may decide to sell a little into the close. The price formation on the SPX daily charts and also the intra-day charts would normally be about 70/30 chance of a consolidation down to 880 by tomorrow or Wednesday at the latest. But in our current environment, I would say the probability is more about 55/45 or so of a continuation of the selling.

1:27 pm MT: The SPX pushed a little and tested right along the resistance line I drew for you in the Triangle pattern earlier. After the test the market rolled over as I warned, and the Triangle is confirming a continuation of the selling.

Here is a 15m chart of the SPX showing the test and rollover within the Triangle:
(click on image to enlarge)

The bears are still having a tough time getting a lot of traction in this current environment, nevertheless the day looks like it will tip in their favor.

5:40 pm MT: Market Wrap: The day did end bearish, and the SPX is in line for more consolidation down into the 880 area.

I have spoken at length about the government manipulation of the news the past two months. I have also spoken at length about the lack of "recovery" fundamentals under this "recovery" V-Bottom. And finally, I have spoken at length about trading calls during the uptrend despite what you or I may think of the fundamentals because you can't fight the fund managers - they have most of the money.

I wanted to post a couple of comments by Meredith Whitney today because they underscore what I have been saying all along. And although I may have been alone in boldly stating government manipulation of the news, and I may have been walking down a road by myself when I talked about the lack of real recovery fundamentals, today Meredith is backing up everything I have been saying for two months, and she did it on CNBC.

Just to set the stage for the comments, remember that Meredith is the analyst who nailed everything correctly with the banks and financial sector all the way through the financial wreck. She called the problems in the CDO's before everyone believed her. She nailed the CDS's before anyone else was talking about them. And she was right on the money and way ahead of everyone else when she called the bank implosion and the financial sector wreck last year. So she carries a tremendous amount of current credibility with the market and fund managers.

An analyst won't help you with option trading, and they won't always be correct forever, so you don't need to run out and subscribe to everything they say or do, but when someone nails the truth way ahead of the curve like Meredith Whitney you keep them in mind for awhile and you listen.

Here are the two articles reporting on her comments today:

Meredith Whitney report:

Additional Meredith Whitney report:

Especially note her comments in the first article about the government's role in skewing the rules and trading in the marketplace. And also note her overall take on the financial sector and the banks. It's very interesting reading coming from a very credible source.

No Stress and Everybody Has a Job

Pre-market futures are up sharply as the market is set to gap again in the wake of better than expected news this morning. None of the news is actually that new or breathtaking, but the initial reaction to the reports is positive. The bank stress tests have been headlined to death for the past week, and today is no exception. Most traders have already priced in the concept that the banks have done "better than expected" on their "stress tests." The final news (until the media decides it needs more headlines or the government decides it needs more ammo) is that the 19 banks tested will have to raise "only" $74.6b in capital to meet the demands of any potential "stress." So, good news.

In addition to the stress test, the market got the Employment Report figures this morning. Remember that the ADP report on Wednesday started me writing about how all three jobs reports would now probably show "better than expected" results, which is exactly what happened. And if I can predict the jobs reports that easily, so can fund managers.....all the way back on Wednesday. So this morning the Nonfarm Payrolls number came in at -539k vs. -600k expected, which put another big tailwind under the pre-market futures. Hourly Earnings dropped to 0.1% vs. 0.2% expected and the Unemployment Rate rose to 8.9% from last month's 8.5% (although the 8.9% was in-line with expectations), so their are some red flags in the report. In addition, the government is half way through hiring 140k people for the upcoming census, so 72k jobs were created by taxpayer money, compared to a drop of 6k government jobs last month. That means that if you adjust the Nonfarm Payrolls number by the number of net jobs not created by taxpayer money then you get a real number of -611k vs. -600k. However, I seriously, seriously, seriously doubt that fund managers will care about the way in which we got to the payrolls number, they will only care about the actual number - and it beat expectations.

The pre-market futures on the SPY, as of 7:00 am MT, are up over $1.35, which would be even larger than yesterday's big gap. The SPY is set to open well over $92.00, which is a sizeable jump, but still almost $1.00 under the highs of yesterday. The past three days have all seen bullish gaps at the open followed by profit-taking for at least an hour (although yesterday saw profit-taking all day). I speculate that the market will do much the same thing today, which is to gap open and then see some profit-taking for a few minutes to an hour. Yesterday the SPY tried to base after the profit-taking but couldn't break back above 91.75 intra-day and then faded away. Today, just like the past three days, watch for the early wiggle/profit-taking, see if the market will base along after the profit-taking, and then reverse back to the upside. If we get a bounce out of an intra-day base then the SPY could try to push up and test the 93.00 area, but if the SPY fades down through the 91.00 - 91.25 area then we may have a day like yesterday.

Turning attention now to the index, here is a chart of the SPX:
(click on image to enlarge)

The same general support and resistance areas are still there. The 920 - 940 area is still resistance, and the 880 area is still support. The SPX will open up in the low 920's and then probably wiggle for a while. A fade down through the 905 - 910 area would be a red flag and signal that the bulls are on the run. A fade through 900 would confirm a good probability for a move back down to 880. Just like the SPY, look for intra-day basing for any potential bullish plays, and keep an eye out for profit-taking early after the gap.

9:35 am MT: Each time the SPY has reached into the 92.75 - 93.00 area the past two days it has been met with strong profit-taking. The SPY (market) held 91.50 and bounced up about 30m ago, but this move looks like it will double back and test the 91.25 - 91.50 area. This whole process is the basing that needs to take place if the SPY has a shot at pushing back to the 93.00 level again later today. The 91.00 - 91.25 area is still the first critical support zone for the day.

There is the possibility that a few bulls try to push the market back to the highs right now, but if they do, I speculate they will be too premature and that there will be some overhead selling in the 92.50 - 92.75 area again. The bulls will probably need a little while longer to base and gather themselves if they want a realistic shot at 93.00 before the end of the day.

10:35 am MT: The SPY did shoot up to the 92.50 - 92.70 area and then sell a little. The market is heading into a rolling price action intra-day. We may see a Rectangle or Ascending Triangle type of price action form on the 15m charts for the next hour or so. The bulls will be aching to take the SPX to the upper zone in the 930 - 940 area, so there is a decent chance that they push the SPY to 93.00. If the bulls manage to get the SPY to 93.00 by the last hour, then I think there will be some weekend profit-taking in the final 45m or so. The day is bullish and will stay bullish unless the SPY drops below the 91.25 area. There is a lot of enthusiasm over the Employment Report this morning, just as I speculated. I have read a couple of headlines that picked up on what I warned of this morning - the higher unemployment rate and the Nonfarm Payrolls number being propped up by taxpayer money - but just like I also warned this morning, I speculated that fund managers would largely ignore the red flags and throw a party for the stock market anyway. The bulls press on.

10:48 am MT: There is the next rollover intra-day at resistance. We'll see if the market holds the 91.50 area and forms a Rectangle or Ascending Triangle.

11:07 am MT: The bulls keep pressing resistance. There isn't much to say other than the day will stay bullish unless the SPY (market) drops below the 91.25 area.

Perfect News for the Bulls, Consolidation for the Market

Pre-market futures are up huge again on the perfect morning for the bulls. Every bit of data last night and this morning is absolutely perfect for the fundies right down to the dotted i and the crossed t.
It started with CSCO beating earnings last night. The stock is up 2.65% in pre-market trading. Then PRU beat earnings last night as well and insurance, which was already on the move yesterday (PRU, MET), is set to gap up even further today. GM posted better than expected earnings results this morning (must be all the cars the union is selling now), and its stock is up pre market. The Energy sector, which is already on the move, got another boost from earnings reports from CAM, FTO, and PXP this morning. All three stocks are up pre market. Gold, which is starting to bounce up from support, is catching a tailwind from GG's and RGLD's earnigs reports this morning. Both stocks are up pre market. Even FNM is up pre-market after posting its earnings.

The economic reports are all bullish as well. Initial Jobless Claims came in at 601k vs. 635k expected, which is exactly what the bulls were positioning for at the close yesterday. They will be looking for additional "good news" from the big government Employment Report tomorrow morning. Also this morning, Productivity reported at 0.8% vs. 0.6% expected, which is also being cheered on as "good news", although what the report is actually showing is that employers are squeezing more work out of less people. Nevertheless, the number is higher than the number traders thought is was going to be so the number must be good news.

If you thought I was done, guess again. Same Store Sales reports this morning are "beating expectations." For instance, JWN had a 10.8% decline in monthly same store sales, but traders were expecting a worse 12.1% decline, so more good news. JWN, JCP, WMT, TGT, ROST, and KSS are all up pre market, just to name a few.

Now, this is where I'm done, right? Nope. The European Central Bank cut its key interest rate to a new record low of 1% this morning. All the European indexes are up between 1% - 2% today.

And of course, now I'm done. Sorry. The Fed has put its own spin on the stress test news. They like what they see, they really do. They called the stress test results "reassuring" for the banks. The banks, which were already on the move, will get a further boost by the "good news" this morning. Stocks like JPM, WFC, USB, BAC, C, GS, BK, STT, BBT, NTRS, PNC, STI, and RKH are all up this morning.

It's a giant party for the bulls, and a big gap up in the SPY will go along with the party. The SPY and SPX are right in the middle of resistance zones, so the price action today will probably be similar to yesterday in that there will be big gap and then some wiggle before the bulls start rowing again. Sometimes, when everything is so perfect the bulls will actaully take profits on the news, especially when the indeces are at resistance and the trend has moved sharper than any time in the past 70 years. But these are determined bulls we're talking about here. So even if they do take profits, watch for an intra-day basing point, just like the last two days, and then see if the bulls make a push to position themselves ahead of the Employment Report tomorrow.

Here is a chart of the SPX:
(click on image to enlarge)

You can see how close the market is to the top end of the resistance zone. The SPX will climb about half the zone to the 930 area right out of the gate. Resistance is obviously the 940 area. The red flag support area is a drop below 920 (give it a little wiggle room to about 918 - 920). A signal that traders are ready to take profits on the current move would be a drop below the 905 - 910 area. Any drop below 910 and the short term move is probably over.

12:25 pm MT: We got red flag number one in the first hour, which put the market into a similar mode as yesterday. Then we got red flag number two a little over an hour ago. The selling today is creating a Bearish Engulfing on the SPY and a Dark Cloud Cover on the SPX so far. These bulls are still an excitable bunch, and they still see 2007 in their eyes, and yesterday I was a little premature in writing the move down as probably over, but today it looks like the short term move is done and the SPX may be headed into consolidation and a move towards 880.

1:10 pm MT: The monkey really did ring the bell today. The fundies are probably sensing from each other that everyone is profit-taking, which is keeping today a momentum day to the downside.

The fund managers have been wearing these for awhile:

It looks like the happy 2007 glasses came off today. We'll see if they strap 'em back on sometime soon and go for another ride to the euphoria zone. I speculate that we won't get the good-time partying again until after a test of the 880 area on the SPX and a few more news bogeys.....

1:35 pm MT: Every time the Googly-Eyes try to buy a dip and base the market, the rest of the fund managers are selling right on top of them. This looks like it will be the first day in over a week that the bulls won't put a big buy order in right at the close. I suspect they will be too scared to get aggressive at the close, even though the Employment Report comes out tomorrow morning and will probably be better than expected. There may be a bit of jostling into the close, but not as emphatic as the past three days.

Bulls Get in the Boat and Row

The ADP Employment Report came out with a number of -491k vs. -645k expected, which is giving the pre-market futures a very bullish bias. Last week was revised to -708k from -742k. The ADP report has done a better job of predicting the big government Employment Report (due out on Friday) the past several months. This is why the bulls have been hanging around and pushing the past week, they wanted to see a number like this. Yesterday I speculated that the battle was between the Dow at resistance and the SPX, which was 15 points below resistance. Well, the SPX will pick up about 10 of those 15 points just in the gap at the open this morning. The SPY is set to gap up over $1.00 (there's those gaps again). The gap will probably wiggle a bit right out of the gate because it's so huge, but the bulls aren't done being excited, exhuberant, and in love. They will have flashbacks to Monday when they got to be the king of the world. So look for more pushing towards resistance as the market goes parabolic with enthusiasm.

Here is a chart of the SPY just before the open:
(click on image to enlarge)

Here is a chart of the SPY just after the open:
(click on image to enlarge)

The SPY gapped very close to the bottom side of the next resistance level at 92.00, which should facilitate the wiggle I was speculating. If the market wiggles into a Bull Flag on the 5m charts, then the bulls will probably try for another push right into the 92.00 - 92.50 area. The higher end of the resistance zone is a little extreme, but these aren't exactly unemotional fund managers we're talking about. I speculate that there is a reasonable possibility for a test of 92.00 on the SPY this morning, with a lower probability of 92.50. The next resistance zone up is about 93.50 - 94.50, which is other-worldly extreme, but I have it there anyway because.....well.....because these are the same traders that ran the market up to where we are right now.

7:46 am MT: The SPY continues to wiggle back into a Bull Flag on the 5m charts. If the SPY can hold the 91.00 - 91.25 area then it has a decent probability of turning and pushing back towards the 92.00 area. Right in this 91.25 - 91.30 area would be the ideal place for a turn and burn if the bulls are going to actually exceed 92.00 by a little bit.

7:50 am MT: Here is the current 5m chart of the SPY showing the Bull Flag that is sitting near the tipping point of just right and too much profit-taking:
(click on image to enlarge)

A Hammer right in this area would be a nice indication that this is the first dip-buying point for the bulls.

7:53 am MT: There's the hammer.

7:50 am MT: Here is the current 5m chart of the SPY showing the Hammer off the Bull Flag (wiggle):(click on image to enlarge)

We'll see how far this first move reaches.

7:57 am MT: The SPY (market) reached back to the highs of the morning and then peaked a little. It looks like there are some profiteers in the 91.60 - 91.70 area on the SPY, so the market may go into a longer consolidation this morning, which is ok. If the market channels a for a little while then it could build up some strength for another attempt at 92.00 on the SPY. The price action today could end up being somewhat similar to yesterday. Once again, from this point on, it will probably be more productive to play individual stocks rather than the index ETF's, although there might be some nice signals later in the morning or day on the ETF's.

8:08 am MT: There was enough of a downdraft from profit-taking just now that the speculation for price action this morning to be similar to yesterday morning looks to be correct.

Here is the current 5m chart of the SPY showing the similarities between this morning and yesterday morning:
(click on image to enlarge)

I think the profiteers are going to keep locking here and there throughout the day and the dip-buyers will keep trying to prop things here and there. At the end of the day, the battle may tip to the bulls on the hope for better than expected numbers from the Weekly Jobless Claims tomorrow and the Employment Report on Friday. Some fund managers may try to position themselves ahead of those reports.

8:25 am MT: The SPY (market) is right on a key tipping point. The SPY has given up almost the entire move from this morning, so the profiteers are selling sharper than yesterday. This is an initial red flag for the bulls today.

8:30 am MT: The monkey rang the bell.....This day is unlikely to recover back to the highs. It may consolidate a bit from here, but the breaching of the gap on such strong profit-taking indicates that fund managers are transitioning from "buying every tiny bit of good news" to "selling the good news", which means the market is potentially at a tipping point for the overall trend. If the bulls can't sustain an ADP Employment number like this morning it shows that there are enough profiteers that are saying "enough" the trend it far too extreme, we're taking profits and walking."

8:40 am MT: If the SPX drops below 902 - 903 then the market is probably headed for the 898 - 899 area. A drop below 897 and the short term move is probably over and the SPX may go and test the 870 - 880 area. The price action is still somewhat similar to yesterday, but it's weaker - and it's weaker with better news. Those are two key distinctions. So the market may try to push a little here and there, and it may even try to rally back into the 910 area or so, but it looks like the monkey rang the bell and a lot of fund managers are locking and walking today. As always, we shall see.....

9:08 am MT: Traders are consolidating the trend today. If the SPX can hold the 903 - 904 area for most of the day, then perhaps the bulls will try to make a late push to position ahead of the next couple of rounds of jobs data. Just like yesterday, it's not likely that the bulls are able to get back to the highs of the day. A drop through 902 - 903 and the SPX might not be able to stay in the green at the end of the day. It looks like the market is going to roll and grind for awhile now, possibly for several more hours.

12:50 pm MT: The bulls managed to hold the 904 lows on the SPX and rally the market to new highs. The profiteers showed up at resistance in the 914 area again, but there were too many bulls to stop the market from making new highs. The SPY has rallied right into the 92.00 resistance area I was looking for this morning before the sharp intra-day selling. The early selling turned out to be less noisy than the mid-day buying. The SPY and the SPX are now banging into resistance, so this is a place to take at least partial profits on any call trades from earlier today.

1:00 pm MT: The SPX is seeing a little bit of selling right at the 920 target I've had for several days. The index is forming a Tweezer Top on the 15m charts. As I just wrote, this is a time to take any partial profits. However, there have been enough bulls piling in to the boat and rowing since the late morning, and there has been enough jostling and eagerness to get positioned ahead of the next round of jobs data, that it's ok to leave some of the position there just in case the bulls blow off the Tweezer Top just like they blew off the early morning selling. A drop below 914 - 915 and the market may consolidate until just before the close, but the bulls keep making comebacks, so there may be some fundies that decide they have to buy the market in the last 15 minutes.

1:15 pm MT: Here is a commentary about the news bogey (the bank stress test reports that popped the market late morning). The stress test has been reported to death and then beaten some more. It's unfortunate that so many fund managers still fall for this game, but it is what it is and all we can do is keep trading the technicals - especially keeping an eye on the intra-day technicals along with the daily charts. The sum total of how this played out is that the market was seeing some profit-taking after the gap up on the employment data. It was all very normal technical action, especially for how extreme the trend has become. But the stress test "revelation" that the banks might not have to raise as much money as previously thought immediately popped the market out of the consolidation. The main catalyst among the banks appears to be C, which will have to raise "only" $5b. The number was less than feared and C took off like it was shot out of a cannon (i.e. short covering and bottom feeders - although there appear to be a huge amount of bottom feeders on C). The stock rallied about 13% in about 90 minutes, and it rallied on about 225 million shares in that same 90 minutes. As I type, C is now giving back most of the rally intra-day.

Today's market is what it is. There are too many fundies with too much money who are trying too hard to speculate on too much news. So we get wild intra-day spikes and drops. We get 28 gaps of about .50 - 1.00 on the SPY in 32 days. We get the market turning on a dime almost every day. The overall trend is up, which is nice for the market. And the economic data has been improving over the short term, which is nice for the economy. So there have been lots of trading opportunities for options the past 6-7 weeks even if the market is having some volatile times day to day and intra-day.

In the giant, macro picture I still wonder aloud about the real recovery in jobs. There are several key areas of the economy that hire people (and no, sorry to tell our political leader, it's not the government). The small business owner employs about half of all private sector employees. They pay almost 45% of the total U.S. private sector payrolls. They have generated 60% - 80% of net new jobs annually over the last decade. And they hire 40% of high tech workers. Proposed tax increases by the federal government, slated for 2011 (will they come sooner?), are targeting incomes over $250k (although the rumored number has been as low as $120k). In addition, states and municipalities are already raising taxes on that same income level of Americans. That hits squarely right on the small business owner demographic. It is highly likely that taking more money from small business owners means those same people are going to cut back and not hire the same amount of employees.

In addition, the healthcare sector is the largest single employer of people in America - by sector. The entire group of related healthcare industries (hospitals, HMO's, biotechs, drug stores etc.) puts more people in jobs than even the financial sector, tech sector, or retail sector. With the passage of the "spending" bill last fall came the creation of the drug Czar and continuos mandates and regulations on how the healthcare sector has to conduct its business (i.e. socialization). Every time a government tries to take over an industry, it assumes that it has the people in government who can run a business in that industry better than the people in the industry itself. I know it seems strange to even state this, but why would the government think it can run healthcare better than people who spent years in school studying their field of expertese, or decades working in the industry? Think about that logically for a moment. Are you experienced, or well-studied in your field of work? Could the government just take over your job, or your company and make it work better than you? Are they better equipped to do what you do better than you do it? Who exactly is the government? Who in the government is going to do your job better than you?

If the small business owner and the healthcare sector were the only areas being targeted then I would still be concerned. But now the government owns the majority of GM, along with the unions, which is a very large employer of people in the United States. In addition, they own the two largest mortgage lenders (FNM, FRE), the largest insurance company (AIG), and are working on owning the banks (remember that C used to be the largest financial institution in the world). The increased taxes on small business owners, and the socialization of healthcare, automobiles, lenders, banks, and insurance is a huge, huge, huge part of the hiring demographic in this country.

I would stop right there and let you chew on that for awhile if it weren't for another issue that I have hammered on for over a year, and that's energy. If small business and key industries are the hiring engine for the economy, then oil is the energy for that engine. It's impossible (until we create a viable alternative energy) to remove oil from the economic equation. It's also impossible to just "go back to the way things were before China, India, Korea, and South Amerca." We don't get to have a magical time machine. We have a new energy paradigm, and it started about the year 2000. There are too many people with energy needs in our world now, so like I have been saying over and over, whenever the market rallies, oil will go right along with it.

If the government keeps mandating limits on energy creation, then there simply won't be enough supply to stop the price of oil from skyrocketing every time the economy is percieved to be "taking off." The most recent 7 week rally in the market has taken oil (adjusted across multiple futures contracts) from a low of $33 to a high of over $56 today. Now, maybe we're all like the frog in the boiling water, and were so used to $100 per barrel and $150 per barrel that we just shrug off the most recent jump in oil, and the spike in gas as it goes from $1.40 to $2.10 in less than two months. But back in the 1990's this would have been a huge deal. The only reason it wasn't perceived as a huge enough deal during the 2006 - 2007 spike was because everyone thought their house was an ATM machine. Who cared if they were spending $2,000 - $3,000 more on gas a year, or even $10,0000? If your home was appreciating in value by $30,000 - $50,000 a year it was a drop in the bucket, right? So oil just ran up 68% right under our very noses, and most people aren't even batting an eye. Gas prices just ran up 50% right under our noses and many people are just yawning. If the market keeps rallying, how far does oil go? Will the magical energy fairy come down from the sky and wave her sparkly wand and suddenly there will be a disconnect in the new world energy paradigm between oil prices and the stock maket? Or should we send a memo to China and India and ask them to very kindly please stop using energy? What exactly is the goal of our current government when it comes to energy, and how will it affect economic growth for years to come?

The market is excited about the recovery in housing. But how much of a recovery are we talking about. almost half of all homes built from the middle of 2005 - 2006 were spec homes. And in 2007 - 2008 many of the spec homes were not built for the local wage demographic, but rather they were much bigger homes that speculators hoped they would be able to flip in a couple of months for a big profit and then go retire on the beach (such is the nature of some speculators). I don't know about your neighborhoods, but in my area we have a huge oversupply of homes that are three to four times more expensive than the average wage earner in my region can afford. So I applaud the move by the Fed and the Treasury to get interest rates down into the 4 3/4% - 5 1/4% as well as they have. It has stabilized the real estate market somewhat, which is excellent. But fund managers are buying the stock market like the entire housing industry is suddenly headed for the good times and glory days again, and it's not.

Think about this.....A prospective buyer (and remember that we have way more homes than buyers because so many spec homes were built in the real estate bubble) comes to your area looking to buy a home. They look at the neighborhood of multi-million dollar homes and they pass because those no interest no down days are over. They look at the homes that are twice their level of current approval and they pass because those no equity no problem days are over. They look at the homes in their price and loan approval range and they notice a bunch of unkempt homes that the banks own and want to move - but don't want to lose money selling, and they pass because curb appeal is second only to location in the real estate buyers playbook. In addition, discretionary spending is tight because of the jobs market, so people don't want to spend a lot of money to get a fixer-upper into livable conditions. Finally they look at a home that a normal, individual seller who is relocating because of work, family etc. (remember those days?) is selling. This seller has kept up the home because they live in it. The homeowner has added nice design accoutrements and made the home very attractive and livable because.....well.....because they live in it! And the homeowner is very aware of pricing in the neighborhood, including the bank foreclosure homes, and decides to sell at a reasonable price in order to move the house and then move on to their next destination. Now, which homes on the market do you think are selling? Are they the huge supply of overpriced homes. Are they the huge supply of bank foreclosures which will need $10k - $20k minimum to get them up to more attractive conditions? Or are they the normal, family homes that a buyer can walk right in to for close to the same price as a foreclosure? And just how many buyers are there for all the rest of the supply? How much population growth will we need to experience in the United States over the next several years to soak up the supply? And how much of the population will have a job in order to buy the home?

Once again, I'm all for good economic news. Especially when it's real, and it's sustainable. And perhaps this rally is actually the start of a new 27 year bull market. Perhaps I will be wrong for being cautious. And despite my caution, I have been completely in favor of ignoring my own skepticism and playing what the technical charts are telling me, which is that fund managers are buying the market. It may be that the market continues to rally all through the rest of the year. It may rally for three more years beyond that. It may just keep rallying because low interest rates have to mean it's the start of a new macro bull market. It may rally for the rest of my life. And I'll keep buying calls as long as it rallies, and so should you.

I present the charts for trading purposes, and I write about the bigger picture for bigger picture purposes. I don't know the future any more than anyone else, so I just trade what's in front of me. We'll see how this all plays out in the next 3-4 years, which is probably why the fund managers are buying like crazy right now. They figure the future is.....well.....a long way off. So buy now and hope for later. And maybe all their hope is going to pay off, and pay of huge for them. As for the present, we continue to buy calls.....

3:00 pm MT: One final note: The market did rally in the last 30 minutes as the fundies bought right into the close. So despite all the gyrations today, the early-day speculation ended up being the final speculation, which is that the bulls bought into the close in order to position themselves for more "good employment news" the next two days.

Earnings Season Trickles to a Close

Pre-market futures are down slightly this morning, most likely on profit-taking from yesterday's big move. Earnings Season is winding to a close with a steady flow of reports, albeit less big name companies than the past several weeks. This morning has the feel of consolidation of yesterday's excitement rather than the feel of the monkey ringing the bell and everyone grabbing their cheese and running for dark holes to hide. So I'm looking for something fairly orderly in the price action and then more pushing back towards yesterday's highs, perhaps even a little beyond.

There isn't enough in the way of big-name earnings reports or major economic releases (although ISM Services is due in about 20m) to drive the market. The price action today will most likely be based purely on technicals and profit-taking. In other words, support and resistances will be catalysts for both profit-taking and buying of dips as traders linger through the afterglow of yesterday's sunny price action.

The DIA is a little easier read this morning, although the momentum still is stronger on the SPY, so I will refer to both.

7:45 am MT: The DIA did wiggle back a little out of the gate and then reach slightly above yesterday's highs, which was not surprising as I indicated. The reach to new highs was met with some profit-taking right away. The market is getting a little tired short term, so this morning will be about fits of profit-taking along with bouts of dip-buying. We will probably see consolidation go back and forth for a little while, which means that individual stocks may have some momentum here and there, but the market will probably hang around to gather its strength for another push to new highs. So far, the price action is fairly orderly as I speculated.

7:53 am MT: Here is a 5m chart of the DIA:
(click on image to enlarge)

The short term support and resistances are pretty clearly defined. A drop below 83.50 would be a red flag for the bulls today. A drop below 82.50 is most likely unrecoverable for the bulls and an indication of severe enough profit-taking that it could be a sign that the monkey rang the bell.

7:53 am MT: Here is a daily chart of the DIA:
(click on image to enlarge)

The DIA is pushing right at a fairly key resistance on the daily charts. So this lends itself even more to the concept of the market pausing and gathering itself as fund managers contemplate whether they want to try for one more push beyond 85 (8,500 on the Dow) or if they should vacate the prow of the ship and head for the dingies. The Dow itself actually exceeded the 8,400 resistance line yesterday, but both the DIA and the Dow are basically in the areas of important resistances. So watch for orderly price action intra-day and the start of a push before climbing on to calls, and look for more momentum on individual stocks rather than the index ETF's.

8:22 am MT: Here is a 15m chart of the SPX:
(click on image to enlarge)

The SPX (market) is traveling along a steep-ish intra-day trendline that will probably not hold, but will see a break through in a sideways and perhaps even a slightly downward direction. The SPX has resistance at 920, although the Dow is running out of gas in a resistance area right now, so this will be a battle between the two indices today. A drop below 892 on the SPX is a red flag for the bulls today. A drop below 880 is most likely unrecoverable for the bulls and an indication of severe enough profit-taking that it could be a sign that the monkey rang the bell.

8:33 am MT: The SPX did break the steep-ish (new important technical term, please memorize.....) intra-day trendline, so the profit-taking continues. I speculate the dips will buy the bulls.....I mean the bulls will buy the dips. So watch for an orderly consolidation and reversal of the profit-taking, there may be one more push in the bulls today. Ideally the SPX holds the 898 - 900 area and then rallies back to about 910, but a drop as far as 892 - 894 is acceptable. I want to see some strength at intra-day support, however, before I get involved with calls. If the market drops all the way to 892 - 894 before holding and trying to push back up then I won't look for new highs but rather a Rectangle type support and resistance price action today between the lows and the 900 - 905 resistance area.

11:55 am MT: The market continues to consolidate in a Triangle pattern not too different from the Rectangle I was expecting earlier. If the SPX pops the Triangle in the next few minutes then the market may reach back towards the highs of the morning. For now, traders are content to keep lingering in the warm fuzzies from yesterday and not worry too much about today. We'll see if they decide to get serious about today in the next few minutes, or if they just stay in linger mode for the rest of the day. This price action is why I warned to look for stocks (with some momentum) to trade today and not the index ETF's.

Here is a 30m chart of the SPX showing the Triangle consolidation:
(click on image to enlarge)

If the SPX breaks above 902.50 then it's probably headed for a test of the highs in the 907 - 908 area. The price action, for all its consolidating and grinding intra-day, is actaully staying fairly tight, which is more indicative of at least an attempt back at the highs of the day.

12:27 pm MT: The SPX failed on an attempt to break the Triangle to the upside.

Here is a 30m chart of the SPX showing the failed breakout:
(click on image to enlarge)

When price action travels that far into the apex of a Triangle and then has a failed breakout, then the Triangle often morphs into a Diagonal Channel. The mid-point of the channel becomes the minimum target and the far end of the channel becomes the max target. The 897.50 area on the SPX needs to hold if the market has a chance at testing the highs in the last hour. If the SPX doesn't hold 897.50 then it may go test 892.50.The bulls are still hanging high and tight, so I don't expect much selling even if the consolidation reaches down the channel a bit. This market consolidation keeps hanging around like it wants to take another shot at a push to the upside.

1:50 pm MT: The market did take another shot at the highs of the day, as was speculated earlier. The price action today won't shake the earth or thunder the skies, but it did hang around in a quasi-bullish manner all day, which means traders are hoping for another push tomorrow. Like I said earlier, the battle is between the Dow at resistance right now and the SPX with resistance another 15 points higher. We'll see what tomorrow brings.

Bulls Push Ahead

Pre-market futures are up over .70 cents as the SPY is set to have another gap. The banks are right in the middle of things as usual. There were concerns that BAC and C were going to have to raise $10b each in order to meet the demands of the stress test. Then Warren Buffet got on CNBC and said that WFC and USB were going to be just fine, so now the banks are just fine. Then the Fed said "we haven't given BAC and C an actual final figure on raising capital." The banks went from being in bad shape to being in good shape with just a few kind words form a couple of nice guys. Isn't that sweet.....

The market gapped up this morning, and will probably attempt to test the area of the highs on Friday (89 on the SPY), but watch for some prophet taking again in that area just like Friday. The key to whether or not there is a play this morning is two fold. The first key is to trade stocks and not the ETF's again, and the second key is what kind of price order we get out of the gate. If we get an orderly wiggle on the 5m charts then there could be a nice push to 89.00 and there could be some nice short term stock call trades.

7:39 am MT: The wiggle out of the gate is a little choppy, but the bulls look like they want to take a shot at the 89.00 area right about now.

7:40 am MT: There's the push to 89.00, so if you are working with calls right out of the gate on some individual stocks you will want to watch that area to take about 1/3rd of your profits and snug up your stops.

7:39 am MT: The wiggle out of the gate is a little choppy, but the bulls look like they want to take a shot at the 89.00 area right about now.

7:40 am MT: There's the push to 89.00, so if you are working with calls right out of the gate on some individual stocks you will want to watch that area to take about 1/3rd of your profits and snug up your stops.

7:46 am MT: The SPY made it right into the resistance zone, so this is the first profit-taking area.

Here is a current 5m chart of the SPY showing the move to resistance:
(click on image to enlarge)

At this point in the morning, it's important to lock a little of your gains, keep 1/2 - 2/3 of your position, and snug up your stops to breakeven. Then watch to see if the next move on the 5m - 10m charts is a Bull Flag or orderly consolidation. If the market stays orderly and fairly tight, then the bulls may try to push through resistance a little later in the morning. If the bears step in and take sharp profits then two things will happen: Your breakeven stops will get triggered and the market will fall through the gap at 88.40. I would put the odds at about 55/45 that we get an orderly consolidation and another little push by the bulls, so it's not overwhelming in favor of the bulls right here, but there's enough possibility to keep some of your positions on the table as long as they are protected. We'll see how the next stage of the morning forms.

7:58 am MT: There's a push through resistance. Use this as an opportunity to take a little more profits because any move into the 89.10 - 89.25 area and the market is going to get a little parabolic on the 5m charts. Once again, you want to keep a bit of the position on the table in order to take advantage of more bullishness later in the morning.

8:03 am MT: This is why you keep some of the position on the table. The market just went hyper to the upside right about the time of the Construction Spending/Pending Home Sales release. This parabolic move on the 5m charts to the 89.60 - 90.00 area (wherever it gasses out right in here) is a place to lock down most of the rest of your calls from this morning. Then look for a nice consolidation (if we get it) on the 5m - 10m charts to add a little back for another push later this morning.

8:10 am MT: The 89.75 - 90.00 area looks like the gassing out point for the first push this morning. 89.75 may be the high for this move before the next consolidation on the 5m charts, which might also lead to a 20m - 30m consolidation before the next push. The bulls are frenetic, and the shorts are running around screaming, so this could stay a bit parabolic for a while longer.

8:20 am MT: In the bigger picture today the bulls are pushing the market to new highs on better than expected manufacturing in China, "good news" from the banks, and better than expected housing data.

Here is a chart of the SPX showing the break to new highs:
(click on image to enlarge):

The report out of China that manufacturing expanded for the first time in nine months, along with the housing data this morning (Pending Home Sales 3.2% vs. 0.0% expected and Construction Spending 0.3% vs. -1.6% expected), is putting the warm air right under the bulls. They can feel the wind beneath their wings. Think Leonardo DiCaprio on the prow of the Titanic with his arms spread wide in total exuberance and shouting in his squeaky, high-pitched voice "I'm the king of the world!" That should give you a visual for what the bulls are feeling this morning.

The first wave of buying is probably about done as the market has gone white hot parabolic and is now finally tipping over on the 5m charts. But the emotional exuberance is probably going to linger through several more pushes today and several more days this week. It will take a 50 ton wrecking ball to knock these bulls off the prow of the Titanic. So I will probably be staying with calls for the rest of the day and the next several days besides. The next key resistance on the SPX is the 920 area. Support is the 870 - 880 area.

9:05 am MT: Here comes another little push. This should take the SPY to 90.00 and perhaps a little beyond. If the market moves into the 90.10 - 90.25 area in the next couple of minutes, then the overall push this morning will be probably be pretty exhausted and the market may need to consolidate for more than an hour, maybe even several hours, before it tries to climb again.

There's not much more to say about today other than it's strongly bullish. If you made some nice profits on calls already this morning, then look for the next orderly consolidations on the 15m - 30m charts during the mid-day to get back in and see if the market makes another bullish push into the close. The only red flags will be if the market sees some sharp selling that drops the SPY back below the 89.00 area. The red flags will turn into drop dead confirmations if the SPY sells down through the gap in the 88.35 - 88.50 area, but the bearish scenario is much less likely on a day like today.

10:48 am MT: This is the first leg up on the 15m charts after the mid-morning consolidation. I won't be surprised if this doubles back down a bit and the market consolidates for another hour or so before making a final attempt at a push in the afternoon.

11:44 am MT: The next leg up came a little earlier than expected. It means the market will probably push a little through resistance, but the bulls didn't give themselves enough time to digest the first move, so the second move may not go very far beyond the morning highs. Probably the 90.10 - 90.25 area will be resistance on the current move. So far, Leonardo is still screaming at the top of his lungs, so the bulls keep sailing forward.

12:05 pm MT: The leg up topped out at 90.12, however the bulls keep pushing the market. So the SPY could still form a short Ascending Triangle on the 15m charts and reach for new highs.

Remember, this is the fund managers today:
(click here)

On the downside (it's always good to have a lifeboat.....), a drop below 89.50 - 89.35 on the SPY would be a red flag. A drop below 89.00 would be an extreme red flag. And a sell-off below this morning's gap at 88.35 - 88.50 would be a drop dead signal for the Titani.....hmm, hmmm, I mean the bulls.

12:29 pm MT: There's the breakout to new highs on the short Ascending Triangle. Well, this has been a bullish day, and it will probably keep pushing here and there, but the 90.25 - 90.50 area may be the top of what fund managers are able to sustain today. There will be some jostling for the next 90m, and perhaps some profit-taking, but overall, this day tips decidedly to the bulls.

2:45 pm MT: Market Wrap: When the dust settled the SPY actually made a very late push at the end of the day for a final tally of 90.88, which is a little beyond what I expected, but not that far out of line with the bullishness of the fund managers. Today, they really did feel like the king of the world.

Market Opens Without a Gap

I know it seems like a weird title, but for only the second time since April 3rd, or about a month ago, the SPY (market) is going to open without a gap of .50 cents or more!

It's been a crazy, other-worldly run of gaps that started on March 19 until yesterday. It must be putting traders in shock to look up at the futures and see a flat reading on the pre-market board. And the funny part about it is that we were actually headed for another gap (up) of more than .50 cents until MA came out with earnings about 30m ago. The company missed on revenues and attibuted the miss to everything (bad exchange rates, higher rebates, and incentives) but a drop in consumer spending - which is typical corporate boilerplate when a company wants to keep the stock price from plummeting. The misdirection, hmm - hmmm, I mean their excuse, is not working and the stock is down almost $7, or 4% pre-market. Which, by the way, means that the gap up in the market yesterday, and emotional exuberance, caused traders to overshoot MA all the way to a high of $188.77 less than 24 hours ago. Traders overshoot on earnings all the time, but this was a big trading miss. Imagine the Googly-Eyes that own MA at $188.77 only a day ago, and are staring at an open of 175.50 today, with the possibility of a gigantic Shooting Star that will probably drop the stock further down into the $160's or lower.....ouch.....

The SPY will probably fade off a bit more today with additional profit-taking. It looks like the combination of MA's earnings and the lack of catalysts anywhere else will lead to a little more locking down as traders continue to exhaust the sharp, V-Bottom trend.

Here is a current 15m chart of the SPY:
(click on image to enlarge)

The same intra-day Head and Shoulders is still there, as well as the Ascent Block/Shooting Star type of pattern on the daily charts. The market may go and test the neckline right now - down in the 86.80 - 87.00 area.

7:37 am MT: This is the quietest price action right out of the gate in quite a while. Today will probably be one of two things, either a quiet consolidation day with some small pushes to the upside and downside, or an ooze day where the market just quietly fades off most of the day. Either way, it looks like it will be fairly subdued, at least for much of the morning. Don't look at the index ETF's too much for trading opportunities, but rather focus on individual stocks for something that will move more than the overall market.

7:41 am MT: The SPY made it to the neckline at 87.02. The way the price action is shaping up, I would give it about 55/45 that the market breaks the neckline and fades/oozes down for a little while. The only reason I'm not expecting more momentum to the downside is because of the Googly-Eyes. They will probably nibble at the heels of every dip today. However, despite their exuberance (see MA above), the market looks like it will fade a bit.

7:51 am MT: I just checked MA and it made it all the way to 163.64 a few minutes ago.....double ouch.....

8:00 am MT: Here are some movers and shakers this morning (remember to check spreads and earnings dates):

Bullish: RIMM, SOHU, MFE, ROK, and BTU

Bearish: AOC, MA, MET, CELG, APOL (there's one for you Gary), DV, NSC, NEM, CVX, STJ, VMC, and COV

8:07 am MT: The market wiggled back and is rolling over again. There is a variation of a Descending Triangle forming on the 5m charts right now, which is also the right shoulder of the Head and Shoulders on the 15m - 30m charts. This is the kind of quiet consolidation with pops and drops and drops and pops I was expecting.

The Descending Triangle lends itself to the 55/45 odds I have for a break of the neckline. A drop below 86.80 would confirm the break of the neckline and lead to more oozing to the downside. A break above 87.50 - 87.60 and the market is probably going to try and push another .50 cents or so and then perhaps travels sideways. This still looks like a quiet ooze or quiet consolidation day, so I'm more interested in the individual stocks and patterns today than the index ETF's.

12:48 pm MT: It was door number two. The SPY held the 86.80 area (the low was 86.72, but it was only there for two minutes), and then pushed through the 87.50 - 87.60 area, which caused another run of about .50 cents (it was actually .61 cents from the confirmation at 87.60 to the high at 88.21). Now the little mini-push during the late morning and mid day looks like it's done on the overall market.

As soon as the market pushed through 86.60, that was the time to look at the bullish stock list I posted earlier. Three of the five stocks (RIMM, SOHU, and BTU) all had nice, playable runs after the market turn. Two of the five (MFE, ROK) rolled sideways for the most part. So there were three winners and two breakevens from the list this morning.

When the SPY hit the .50 cent target beyond 86.60 that I mentioned earlier, that was the time to be scaling out. As it turned out, the market went another .11 cents, so the target was just about right on. Anything beyond the target (that last .11 cents) was a chance to scale out of most of the rest of any calls from the bullish list.

Some of the bearish list stocks still worked today as well, despite the market consolidating and making a mini-push. MET, CELG, APOL, DV, and NEM are down some more from earlier in the day.

1:00 pm MT: There is a Bull Flag forming on the SPY 15m charts, but I'm not a huge believer in this one. It will probably pop to the upside a little, but I don't see the market rallying hard into the close. If the Flag pops to the upside, use the move back towards the highs of the day to take profits on any remaining calls.

1:03 pm MT: There goes the Flag, it popped to the upside. If the SPY gets back to (or above) 88, then lock down the remaining profits. It may try to run to 88.25 or so, but I think there is a 50/50 chance this pop even turns out to be a failed signal. Normally Flags are about a 70/30 to make a higher high, but this one, in its context, is probably more like 50/50.

1:17 pm MT: I was correct, the Flag bounce was just as likely to be a failed signal, which it did.

Here is a current 5m chart of the SPY showing the failed signal:
(click on image to enlarge)

I had to show the failed signal on the 5m chart so you could see it better, although the Bull Flag was actually happening on the 15m chart. Today will probably end up as something like a Doji, or modest consolidation, which is right in line with what I was looking for this morning - a quietish, consolidating, or oozing type of day. The stock watchlist was much more useful to your trading today than the index ETF's, just as speculated.

Important Notice: I will be repeating this again over the weekend. Starting Monday, this blog will not be the first place I post market sensitive information. I will be starting a formal beta test of the new service tomorrow and run it for a few days to make sure everything is clean. Then the new service will launch after the test. I will cut and paste some text-based information from time to time throughout the day (from the new site) and post it here, so this blog will still be useful. But much of my focus, starting on Monday, will be posting the live, market sensitive information, as well as stock watchlists and paper trades over on the new site. I will give updates over the next several days regarding the changeover, and I will work on keeping this blog at least functional for all the regular viewers as I make the final preparations for the complete transition.

1:50 pm MT: The market is close to finishing out as a Doji. So a quiet day overall, with a few movers and shakers that I pointed out earlier today with the stock watchlist. Many traders are probably already gone for the weekend.